WASHINGTON: The US Federal Reserve is making “modest” progress in its inflation fight, the head of the US central bank told lawmakers Tuesday, on the first of two days of testimony in Congress. When prices surged in the wake of the COVID-19 pandemic, the Fed responded by hiking interest rates to a two-decade high as it attempts to cool down the US economy and return inflation to its long-term target of two percent.

Inflation has eased significantly since it peaked in 2022, but progress stalled in the first quarter of this year, effectively putting the Fed’s fight on pause. The data in the second quarter has been more encouraging, prompting some cautious optimism from some policymakers in recent weeks.

Speaking to lawmakers in Washington, Fed Chair Jerome Powell said most recent readings “have shown some modest further progress” since the first quarter of the year. “More good data would strengthen our confidence that inflation is moving sustainably toward two percent,” he added during his appearance in front of the Senate Banking Committee to discuss the Fed’s semi-annual monetary policy report.

Powell is likely to face tough questions from lawmakers on Tuesday - and again the following day in the House of Representatives - about the impact of the Fed’s high interest rates on everyday Americans. The Fed is widely expected to remain on pause when it meets to set interest rates later this month, but could begin cutting rates in September.

Futures traders have assigned a probability of more than 75 percent that the Fed will make its first rate cut by mid-September, according to CME Group data. They also see it as more likely than not that the Fed will make another quarter percentage-point cut by the end of the year. At the Fed’s June 11-12 meeting the median projection of 19 officials was for just a single quarter-point rate cut by the end of the year, but since then inflation data has come in weaker than expected and several policymakers - including Powell - have begun noting concerns about a slowing job market.

Data last week showed firms added a still-healthy 206,000 jobs in June, but revisions to prior months show the trend is lower, and Powell in recent public comments said the US may be at the point where further weakening in the economy causes a jump in the unemployment rate.

The jobless rate already has been creeping higher, rising to 4.1 percent as of June from 3.4 percent in April of 2023, a number that matched a 55-year low. The consumer price index meanwhile did not rise at all in May, and analysts anticipate another weak reading when data for June is released on Thursday.

“It is very much understood by us that we have two-sided risks,” Powell said last week, capturing a sense among Fed officials that they can no longer be solely focused on lowering inflation in deciding how long to maintain their current tight monetary policy, but must also consider how rigorously to guard against slowing the economy too much. “We understand that if the labor market softens too much perhaps we lose the expansion,” Powell said at an economic conference in Portugal sponsored by the European Central Bank. — Agencies